China’s state-led capitalism operates through a dual-track system that distinguishes market-driven enterprises from state-function entities. Firms overseen by the State-owned Assets Supervision and Administration Commission (SASAC) compete, generate profits, and undergo market-oriented restructuring, while a parallel set of state-owned enterprises (SOEs) under the Ministry of Finance function as instruments of national policy, safeguarding fiscal stability, strategic capacity, and social resilience. Key examples—including China State Railway Group, China Post Group, China National Tobacco Corporation, and Beidahuang State Farms—demonstrate how China embeds commercial operations within a broader framework of state control. As a guiding principle, the system treats what can be priced as capital, and what cannot be allowed to fail as state.
I. The Dual-Track Logic of China’s State Capitalism
1. SASAC and the Governance of Operating State Capital
The State-owned Assets Supervision and Administration Commission (SASAC) manages China’s market-oriented state-owned enterprises (SOEs), a category often described as “operating state capital.” These firms—including PetroChina, China Mobile, and State Grid—function under conventional corporate rules, governed by Company Law and evaluated primarily on financial metrics such as return on equity, profits, and capital appreciation. SASAC’s approach emphasizes efficiency, competitiveness, and shareholder value, enabling these enterprises to merge, restructure, or exit sectors as market conditions dictate.
This governance track reflects a broader strategy of embedding commercial logic within state ownership. By prioritizing capital performance and global competitiveness, SASAC ensures that operating SOEs are disciplined by market forces while remaining instruments of strategic national interest. In essence, this framework treats state-owned assets as actively managed capital—leveraging state ownership not to insulate from competition but to harness it for both domestic growth and international influence.
2. Ministry of Finance and the Management of Strategic State Functions
The Ministry of Finance (MoF) oversees China’s policy-driven, irreplaceable state-owned entities—organizations whose value cannot be captured through profits or conventional financial metrics. These institutions are critical to national stability, fiscal security, and the state’s governance reach, and they often operate as systemically infallible pillars of the political economy. Unlike market-oriented SOEs, MoF-managed entities are governed not by market logic but by strategic priorities, serving as instruments to safeguard long-term national resilience.
Under this framework, operational inefficiencies, low profitability, or even financial losses are tolerated—and sometimes expected—because the primary goal is the preservation of essential state functions. By subordinating commercial performance to fiscal-sovereign objectives, the MoF ensures that these strategic enterprises maintain continuity and reliability, reinforcing China’s ability to manage systemic risks and protect its national interests. In effect, this track treats state-owned assets as instruments of survival and governance, rather than as purely economic actors.
II. Four Pillars of China’s Strategic Backbone Sectors
These four MoF-supervised entities are not traditional corporations, but institutionalized state organs using corporate forms. They exemplify the “unprofitable but indispensable” principle.
1. China State Railway Group — The Spatial Skeleton of the State
China State Railway Group is more than a transportation enterprise; it functions as a fundamental pillar of the nation’s territorial and political infrastructure. Railways in China are designed to integrate domestic markets, anchor remote and sensitive regions such as Tibet, Xinjiang, and Qinghai, and ensure population mobility. Beyond economic considerations, the network plays a critical role in wartime mobilization, disaster relief, and maintaining national cohesion, reflecting the state’s prioritization of strategic functionality over profitability.
Many railway lines operate at structural losses, yet these are tolerated because of their strategic importance. Under the supervision of the Ministry of Finance, such losses are treated as fiscal investments rather than failures. Debt financing—exceeding six trillion RMB—is supported through sovereign-linked channels, effectively embedding the railway system into the national balance sheet. This approach ensures that the network continues to operate even when market logic would deem certain lines unprofitable, reinforcing systemic resilience and territorial integrity.
The strategic rationale for maintaining these operations under fiscal rather than commercial oversight is clear. If China State Railway Group were transferred to SASAC’s market-driven management, market pressures could lead to the closure of loss-making but strategically essential routes, undermining national unity and regional stability. By treating railways as instruments of state function rather than purely commercial enterprises, China safeguards both the cohesion of its territory and the broader resilience of its political and economic systems.
2. China Post Group — Nerve Endings of Governance
China Post Group functions as the state’s communication and logistics network, operating as the “nerve endings” of governance. Its mandate extends to every administrative village, including remote and economically unviable areas, ensuring that the state maintains administrative reach and bridges the digital and financial divides. Beyond postal services, China Post also acts as a conduit for financial services through the Postal Savings Bank, extending the state’s presence into local economies and underserved communities.
The core postal and logistics operations are structurally unprofitable, with losses offset by profitable subsidiaries such as the Postal Savings Bank. Supervised by the Ministry of Finance, these losses are treated as investments in governance rather than failures. Fiscal support guarantees universal service, ensuring that rural and remote regions remain connected, even where private logistics providers would withdraw due to unprofitability. This oversight reflects the broader strategic rationale: maintaining state presence and connectivity across the country is more important than short-term financial returns.
Contrasting with SASAC-managed enterprises, which are driven by market efficiency and profitability, China Post under MoF oversight prioritizes public service and state reach. Market-focused management would likely reduce or eliminate services in unprofitable areas, creating “service deserts” and eroding the state’s ability to govern and support its citizens in remote regions. By embedding these essential services within a fiscally sovereign framework, China Post exemplifies how strategic state functions can sustain social cohesion, administrative control, and nationwide connectivity beyond market logic.
3. China National Tobacco Corporation (CNTC) — Fiscal Sovereignty in Corporate Form
China National Tobacco Corporation (CNTC) exemplifies how state-led capitalism can operate as a tool of fiscal sovereignty. Functioning as a legal monopoly under a dual enterprise-and-regulator structure, CNTC generates predictable annual profits exceeding 150 billion yuan, which are remitted directly to the state treasury. Its stable and inelastic consumer demand ensures that revenue streams remain reliable, making CNTC less a conventional business and more a mechanism for securing state finances.
Supervised by the Ministry of Finance, CNTC prioritizes alignment with fiscal and policy objectives over independent corporate governance. Market considerations, such as efficiency or competition, are secondary to the strategic purpose of ensuring revenue stability for the state. The monopoly structure is carefully maintained to serve these fiscal imperatives, insulating the corporation from competitive pressures that could threaten its contribution to government coffers.
The strategic rationale for MoF oversight is clear: CNTC is critical to China’s fiscal security. By embedding the corporation within a framework of state control rather than market discipline, the government ensures consistent, predictable income while retaining direct influence over a key economic lever. CNTC illustrates the principle that certain enterprises exist not primarily to compete in markets but to sustain the financial and policy foundations of the state.
4. Beidahuang State Farms Group — Ballast Stone for Food Security
Beidahuang State Farms Group serves as a strategic pillar of China’s food security, functioning as both a large-scale agricultural producer and an institutionalized land-holding entity. Controlling over 40 million mu of arable land, the group produces roughly 40 billion jin of grain annually, contributing to strategic reserves, stabilizing market prices, protecting the fertility of black soil, and providing emergency food supplies. Its operations extend beyond agriculture, sustaining historical social functions such as schools, hospitals, and local communities, reflecting its role as a long-term societal anchor.
Under Ministry of Finance supervision, Beidahuang’s operations are insulated from market pressures that might otherwise prioritize short-term profitability. Fiscal oversight ensures continuous investment in staple crops, preserving production capacity regardless of fluctuations in market prices or agricultural profitability. This protection allows the group to maintain its strategic mission of safeguarding food security and rural livelihoods, even when individual farming operations would not be commercially viable.
The contrast with SASAC-managed enterprises underscores the strategic rationale: a profit-driven approach could shift production toward higher-margin or luxury crops, reduce land investment, and expose China to food insecurity. By embedding Beidahuang within a fiscal-sovereign framework, the state guarantees the continuity of its agricultural, social, and strategic functions. In this way, Beidahuang acts as a “ballast stone,” stabilizing the nation’s food system and ensuring resilience against both economic and environmental shocks.
III. Administrative-Enterprise Integration in China’s Strategic SOEs
China’s strategic state-owned enterprises exemplify administrative-enterprise integration, blending features of government ministries with corporate structures. Leadership often straddles both spheres: for example, the head of CNTC simultaneously serves as Vice Minister of the State Tobacco Monopoly Administration. This dual role ensures that enterprise decisions are closely aligned with national policy objectives, while operations simultaneously advance fiscal, social, and security goals.
Debt and financing are also integrated with state authority. Liabilities are treated as sovereign credit, enabling long-term investments that exceed the constraints of private capital markets and ensuring continuity of strategic functions even when operations are not commercially profitable. These enterprises differ fundamentally from SASAC-managed SOEs, which are evaluated primarily on market performance and financial returns. In contrast, administrative-enterprise integration prioritizes national stability, governance reach, and systemic resilience over conventional profitability metrics.
IV. Why SASAC Cannot Manage These Strategic Sectors
SASAC lacks the administrative authority, fiscal redistribution powers, and social mandates necessary to manage China’s most strategically important sectors. It is designed to oversee market-oriented, profit-driven enterprises, and does not possess the tools to operate monopolies, maintain universal services, or uphold social and emergency obligations. Attempting to place policy-driven entities under SASAC would create fundamental contradictions between profit and stability, efficiency and coverage, and capital discipline and national security.
The sectors in question—such as railways, postal services, strategic agriculture, and tobacco—carry significant administrative, social, and security functions. They maintain schools, hospitals, and local communities, while providing direct fiscal pipelines for state objectives and emergency response capabilities. Structural separation from SASAC allows China to safeguard these essential functions from market pressures, ensuring that national stability, public service, and strategic resilience are prioritized over short-term financial performance.
V. Broader Implications of China’s Dual-Track State-Led Capitalism
China’s dual-track system of state-led capitalism balances market efficiency with strategic stability by segregating governance responsibilities between SASAC and the Ministry of Finance. In competitive industries, SASAC oversees market-oriented SOEs, prioritizing capital efficiency, profits, and return on equity. By contrast, the Ministry of Finance supervises strategic infrastructure, fiscal monopolies, and critical areas such as food and land, where the primary focus is maintaining systemic stability, ensuring revenue security, and safeguarding national resilience. These MoF-managed entities operate under fiscal support, treasury remittances, and sovereign-backed credit, with tolerances for operational losses that would be unacceptable in market-driven sectors.
This structural separation ensures that profit imperatives do not undermine national security or public service obligations. Whereas SASAC SOEs may fail, be restructured, or be exited based on market performance, MoF SOEs cannot fail without jeopardizing critical state functions. Railways, postal services, tobacco, and Beidahuang illustrate this principle as unprofitable yet indispensable pillars of China’s governance architecture. By clearly distinguishing evaluation metrics, funding mechanisms, and tolerance for failure across the two tracks, China preserves both efficiency in commercial sectors and resilience in strategic areas, embedding market logic within a broader framework of fiscal sovereignty and national stability.
VI. Summary & Implications
China’s strategic backbone sectors—railways, postal services, tobacco, and Beidahuang State Farms—function as extensions of state capacity rather than profit-driven enterprises. Railways act as the skeleton of the state, integrating territory and markets; China Post serves as the nerve endings, maintaining administrative reach; tobacco provides a stable fiscal blood supply; and Beidahuang safeguards the nation’s granary and food security. These entities ensure daily governance, continuity in crises, the security of critical resources, and nationwide stability.
In essence, China’s state-led capitalism applies market and capital logic where feasible, but prioritizes sovereignty and resilience where necessary. By managing strategic sectors as instruments of state capacity, the dual-track system blends efficiency with stability, embedding market mechanisms within a broader framework of national priorities and demonstrating a sophisticated approach to governance and economic management.